Ukraine-related sanctions: Key issues for companies

What is the status of the evolving international sanctions against Ukraine and Russia?

Since the recent escalation of the Ukraine crisis in March, there have been almost daily developments regarding economic sanctions – ranging from details of implementation to proposals for new or tougher measures. This report provides a snapshot of the current sanctions, how they apply to companies doing business in or with Ukraine or Russia and their customers and counterparties, compliance requirements in different scenarios, and where sanctions might be headed in the near future.

I. Current Sanctions -

A. Who has imposed sanctions?

A number of jurisdictions have introduced sanctions measures in response to the situation in Ukraine, including the United States (US), the European Union (EU), Canada, and Australia, and other countries may do so. Russia also has responded with its own sanctions, imposing a travel ban on specified US officials. This report will focus on the main sanctions imposed by the US and the EU.

Ukraine-related sanctions:
Key issues for companies
May 5, 2014
What is the status of the evolving international sanctions
against Ukraine and Russia?
Since the recent escalation of the Ukraine crisis in March, there have been
almost daily developments regarding economic sanctions – ranging from
details of implementation to proposals for new or tougher measures. This
report provides a snapshot of the current sanctions, how they apply to
companies doing business in or with Ukraine or Russia and their customers
and counterparties, compliance requirements in different scenarios, and
where sanctions might be headed in the near future.
I. Current Sanctions
A. Who has imposed sanctions?
A number of jurisdictions have introduced sanctions measures in
response to the situation in Ukraine, including the United States (US),
the European Union (EU), Canada, and Australia, and other countries
may do so. Russia also has responded with its own sanctions, imposing
a travel ban on specified US officials. This report will focus on the main
sanctions imposed by the US and the EU.
B. What are the current US and EU sanctions measures?
In March 2014, the US issued three Executive Orders pursuant to which
the Obama administration has since imposed sanctions in March and
April on 45 individuals and 19 entities.1 These Executive Orders also set
the stage for more sweeping sanctions that potentially may be imposed
against individuals and entities in various sectors of the Russian
economy.2 In addition, on April 3, 2014, the US enacted legislation that
supplements the Executive Orders and authorizes potential sanctions
against additional categories of Ukrainian and Russian persons.3
In particular, the US sanctions issued to date require US persons
(including US citizens, companies and banks incorporated in the US,
including foreign branches, and any individual or entity located in the
United States) to block (freeze) all property or interests in property of
designated parties, where such property or interests in property are or
come within the United States or the possession or control of US
persons anywhere in the world. The US sanctions also prohibit US
persons from engaging, directly or indirectly, in any dealings with, or for
In this issue…
Current sanctions
What the sanctions mean for
your company
How the sanctions scenario might
change in the future
1 The entities include Bank Rossiya (designated on March 20, 2014), Chernomorneftgaz (designated on April 11, 2014; the designation refers only to
the entity in Crimea at the address listed, and not its parent company), and 17 Russian banks and companies (designated on April 28, 2014).
2 The Executive Orders (13660, 13661, and 13662) can be accessed here: http://www.treasury.gov/resource-
center/sanctions/Programs/Pages/ukraine.aspx. The list that identifies designated parties (i.e., the Specially Designated Nationals and Blocked
Persons List (“SDN List”)) is maintained by the US Treasury Department’s Office of Foreign Assets Control (“OFAC”), and can be accessed here:
http://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/default.aspx.
3 The legislation, the Support for the Sovereignty, Integrity, Democracy, and Economic Stability of Ukraine Act of 2014, can be accessed here.
the benefit of, designated parties. Non-US entities
also may be subject to these restrictions if they act in
the United States or their transactions have some
other US nexus. Designated individuals also are
subject to a visa ban.
The Executive Orders also target entities that are
owned or controlled by designated parties. As a
general rule, entities with 50 percent or greater
ownership interest held by a designated party,
directly or indirectly, are deemed blocked by
operation of law (together with designated parties,
referred to as “blocked persons”), even in the
absence of a specific designation. Absent a license,
US persons likewise must block (freeze) the property
of such blocked parties and are restricted from
dealing with them, directly or indirectly. With respect
to entities in which a designated party has a
significant ownership interest that is less than 50
percent, or which a designated party may control by
means other than a majority ownership interest, US
persons are advised to act with caution as these
parties may be designated in the future.
Until further notice, effective March 1, 2014, US
authorities also have placed a hold on the issuance
of any export licenses authorizing the export or re-
export of items to Russia that require such licenses,
such as items that relate to short supply, chemical
and biological weapons, national security, missile
technology and for certain crime control purposes.4
On April 28, 2014, they announced that they would
deny any pending applications to export or re-export
any high technology item subject to the Export
Administration Regulations (EAR) to Russia or
Crimea that contribute to Russia’s military
capabilities, and that existing licenses meeting these
conditions also would be revoked.
On April 11, 2014, US authorities added
Chernomorneftgaz to the Entity List in response to
Russian expropriation of the company, and on April
28, they added 13 additional companies to the Entity
List.5 Designation on the Entity List imposes a
license requirement for the export, re-export, or other
foreign transfer of items subject to the EAR to such
companies, with a presumption of denial. This
includes most US-origin products, as well as some
non-US made items that incorporate greater than de
minimis US-origin content and items that are the
direct product of certain US-origin technology.
The State Department has taken the same action in
connection with exports of defense articles and
defense services to Russia. On March 27, 2014, it
placed a hold on all pending export license
applications for export to Russia. Effective April 28,
2014, the State Department also announced it would
deny any pending applications for export or re-export
of any high technology defense articles or services
regulated under the US Munitions List (USML) to
Russia or Crimea that contribute to Russia’s military
capabilities, and that existing licenses that meet
these conditions also would be revoked.
4 This action was introduced by the US Commerce Department’s
Bureau of Industry and Security (“BIS”).
5 This action was taken by BIS. Chernomorneftgaz and the 13
additional entities also were included in the April 11 and April 28
designations.
In parallel with the US sanctions, the EU has
imposed sanctions on 48 individuals from Russia and
Crimea.6 These sanctions include an asset freeze,
as well as an entry and transit ban.7 The EU has
further imposed a separate asset freeze on 22
individuals in relation to alleged misappropriation of
Ukrainian state funds and human rights violations in
Ukraine.8 There are a few matches between the
names featured on the US sanctions list and on the
EU sanctions lists, but the EU sanctions are so far
relatively narrow; the main difference compared to
US sanctions is that the EU has not yet designated
any entities and the currently designated persons
mostly consist of politicians and military officers.
As a result of the asset freeze, all funds and
economic resources belonging to, or controlled by,
these EU-designated persons must be frozen.
Furthermore, no funds or economic resources may
be made available - either directly or indirectly - to or
for the benefit of these persons. This means, for
example, that funds or economic resources cannot
be made available through persons or entities owned
or controlled by designated parties.9 In other words,
if there is EU jurisdiction, one cannot as a general
rule do business with these individuals, or legal
persons, entities or bodies associated with them.
The concepts “funds” and “economic resources” are
interpreted very broadly in the EU to include anything
that can be used to obtain funds, goods or services.
In addition, while all EU Member States have agreed
to suspend export licences on equipment destined
for Ukraine that might be used for internal repression
and to “reassess” export licences for military
equipment in this context,10 certain EU Member
States have individually imposed further restrictions
in response to the Ukraine crisis. On March 18, 2014,
the UK announced that it had suspended all existing
and pending licences covering export to Russia of
military and dual-use items destined for units of the
Russian armed forces, or other state agencies, which
6 See Regulation 269/2014 at http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2014:078:0006:0
015:EN:PDF. The list identifying designated parties is featured in
Annex I. See also Implementing Regulation 284/2014 at http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2014:086:0027:0
029:EN:PDF. and Implementing Regulation 433/2014 at http://eur-
lex.europa.eu/legal-
content/EN/TXT/PDF/?uri=OJ:JOL_2014_126_R_0002&from=EN.
The lists identifying designated parties are featured in the Annexes
to these Regulations.
7 See Council Decision 2014/145/CFSP, Article 1, at http://eur-
lex.europa.eu/legal-
content/EN/TXT/PDF/?uri=CELEX:32014D0145&from=EN.
8 See Regulation 208/2014 at http://eur-lex.europa.eu/legal-
content/EN/TXT/PDF/?uri=CELEX:32014R0208&from=EN. The list
identifying designated parties is featured in Annex I. See also
Implementing Regulation 381/2014 at http://eur-lex.europa.eu/legal-
content/EN/TXT/PDF/?uri=CELEX:32014R0381&from=EN. The list
identifying designated parties is featured in Annex I, while certain
amendments to entries for previously listed parties are specified in
Annex II.
9 Council guidelines provide further clarification as regards the specific
terms of making funds and economic resources “indirectly” available
through persons or entities owned or controlled by the listed parties,
referring to factual elements such as shareholdings, participation in
the decision-making process, etc. See
http://register.consilium.europa.eu/doc/srv?l=EN&t=PDF&gc=true&sc
=false&f=ST%209068%202013%20INIT.
10 See
http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/E
N/foraff/141110.pdf.
could be or are being deployed against Ukraine.11
This licensing suspension also covers exports of
items destined for third countries for incorporation
into equipment for subsequent export to Russia
where there is a clear risk that the end product will be
used against Ukraine. The UK has also encouraged
other European countries to take similar action. In
fact, there have been recent reports that Germany
has blocked certain arms exports to Russia as well.12
C. Are there any exceptions or carve outs?
In the US, in limited circumstances, US authorities
might grant a license authorizing a party to engage in
certain activities that otherwise would be prohibited.13
Possible examples include authorizations to wind
down transactions with designated parties pursuant
to contractual commitments entered into prior to
designation. OFAC also potentially could authorize
companies to engage in otherwise prohibited
payments that involve certain products, e.g., food,
medicine, or humanitarian goods. The US may issue
guidance on exceptions. Designated parties also
can submit a written request to US authorities to be
“delisted.”14
Under the EU sanctions, the competent authorities of
the EU Member States can authorize derogations
from asset freeze measures in certain specified,
limited circumstances. For example, derogation from
the asset freeze could be allowed if payments are
intended exclusively for the payment of fees or
service charges for routine holding or maintenance of
frozen funds or economic resources, or where a
payment by a designated party is due under a
contract that pre-dates the asset freeze, provided the
payment does not benefit that designated party.
Furthermore, the asset freeze will not prevent the
crediting of frozen accounts by financial or credit
institutions that receive funds from third parties, or
the addition of interest or other earnings to
frozen accounts.15
D. What are the penalties for violating sanctions?
US penalties for violations of the sanctions can be
severe, including substantial civil and criminal fines
and imprisonment. The Executive Orders also
establish that the provision of material or
technological support for, or goods or services to,
designated persons is a criterion for potential
future designation.
In the EU, the competent authorities of the EU
Member States are responsible for implementation
and enforcement of such sanctions policy.16 All
Member States enforce EU sanctions through
criminal law, but the precise scope of penalties
11 See http://blogs.bis.gov.uk/exportcontrol/uncategorized/notice-to-
exporters-201406-uk-suspends-all-licences-and-licence-applications-
for-export-to-russian-military-that-could-be-used-against-ukraine/.
12 See
http://www.telegraph.co.uk/news/worldnews/europe/germany/10785
658/Germany-halts-weapons-exports-to-Russia.html.
13 The relevant principal US authority is the US Department of the
Treasury’s Office of Foreign Assets Control (“OFAC”).
14 OFAC is responsible for delisting.
15 See Articles 4 – 7 of Regulation 269/2014.
16 See the listing of websites for more information on the EU Member
States’ competent authorities in this context in Annex II of
Regulation 269/2014.
(including fines and imprisonment) can therefore vary
from one Member State to another.
II. What the sanctions mean for
your company
A. Do the sanctions apply to your company?
With respect to US sanctions, first you must
determine if you are a US Person. The sanctions
apply to US Persons, which include:
• Individuals and entities located in the
United States;
• US citizens and green card holders,
wherever located;
• US incorporated companies, including foreign
branches; and
• US subsidiaries of non-US companies.
US persons are prohibited from dealing, directly
or indirectly, with designated parties or
blocked persons.
Second, you must determine on a
transaction-by-transaction basis (for all activities,
including, but not limited to, import and/or export
transactions, sales, purchasing, licensing, borrowing
and acquisitions) whether a transaction with a US
nexus (denominated in US dollars or involving US
persons) also involves blocked parties. Under certain
circumstances, US sanctions can reach non-US
persons involved in transactions with blocked
persons if the transaction occurs in the United States
or has a sufficient US nexus. Moreover, even where
there is no apparent US nexus, you should exercise
extreme caution engaging in transactions with
blocked persons given the fluid and evolving nature
of the sanctions and the fact that the US has warned
that it may designate additional parties, including
those found to have provided support to designated
parties. The Executive Orders specifically identify
the provision of support or other services to
designated parties as a basis for potential
future designations.
In addition, the US policy announced, as of March
1st, regarding the suspension of export licenses for
exports or re-exports to Russia impacts not only US
businesses engaged in exports to Russia, but also
non-US companies engaged in exports to Russia
from third countries of products that are of US origin
and that require BIS licenses. This can include
products with US origin content or made as the direct
product of US origin technology. The addition of 14
companies to the Entity List also impacts US and
non-US companies by imposing a license
requirement for exports from the US or re-exports of
US origin content or technology from third countries
to these companies.
EU sanctions are only applicable to activities falling
under EU jurisdiction, i.e. when there is an EU nexus
linking restricted activities to the EU. As a general
rule, the EU has jurisdiction in the following
five situations:
a) within the EU territory;
b) on board any aircraft or vessel under EU
Member State jurisdiction;
c) to nationals of EU Member States (even if
outside the EU);
d) to entities incorporated or constituted under
the law of a Member State; and
e) to entities in respect of any business done in
whole or in part within the EU.
This means that non-EU companies can potentially
be covered by the EU’s sanctions, depending on the
circumstances under which they perform business
activities in the EU. For example, in such a context
there will generally be EU jurisdiction when Member
State nationals are acting as employees, or when a
particular (restricted) transaction relates to the
company’s business within the EU.
B. What steps can be taken to comply with the
sanctions and limit exposure?
Key steps to manage risk under the US and EU
sanctions now in place include:
• Screening parties to transactions (e.g.,
customers, suppliers, distributors,
transportation companies, banks) that involve
a Russian or Ukrainian element against
comprehensive designated party lists;
• Performing due diligence with respect to
ownership of parties to transactions, including
beneficial ownership;
• Performing heightened due diligence with
respect to transactions where there are
red flags or otherwise may be a reason to
believe a designated entity is benefiting
from a transaction that on its face does not
involve one;
• Considering additional contractual language
and other protections in contracts and
transaction documents to cover current or
future Ukraine-related sanctions;
• Reviewing and ensuring that compliance
programs are robust and effective, with
adequate procedures and training programs,
and are updated to account for the Ukraine-
related sanctions;
• Monitoring and anticipating possible
future sanctions; and
• Seeking OFAC or other authorization,
wherever necessary.
III. How the sanctions scenario might
change in the future
The current sanctions are fluid and volatile, and are
subject to unforeseeable political and economic
developments. For example, in the US, one
Executive Order already authorizes future sanctions
on entities operating in the financial services, energy,
metals and mining, engineering, and/or the defense
and related materiel sectors of the Russian
Federation. In addition, the legislation passed on
April 3, 2014 authorizes future sanctions on close
associates or family members of Russian
Government officials.
With respect to EU sanctions in response to the
Crimea crisis, the EU Council recently confirmed that
work is underway on a proposal for economic, trade
and financial sanctions which would be applied if
further steps are made by Russia to destabilize the
situation,17 but the details and timing of such
additional restrictions are at this stage unclear.
Furthermore, it has been reported that the EU will in
the near future impose economic and trade
restrictions against Crimea itself which would
essentially treat it as an occupied territory, as a legal
consequence of Russia’s annexation.18
On April 17, 2014, the US, EU, Ukraine, and Russia
engaged in diplomatic talks in Geneva and agreed on
initial concrete steps to de-escalate the crisis. On
April 28, the G-7 issued a statement promising
further sanctions in light of the absence of Russian
steps to implement the agreement reached in
Geneva.19 The additional EU and US designations
and export restrictions were announced following the
G-7 statement. There continues to be talk of potential
new sanctions on the horizon.
Taking a historical look at sanctions imposed in past
crises may suggest alternative future scenarios,
assuming there is no definitive diplomatic solution to
this crisis:
• Current sanctions could continue in place
largely as is for an extended period;
• Sanctions could become progressively
tougher and broader in scope but still allow
some commercial activity (which EU
sanctions normally do in any event, as there
is a tendency to avoid comprehensive
country-wide sanctions measures);
17 See
http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/E
N/foraff/142223.pdf.
18 See http://www.euractiv.com/sections/europes-east/eus-crimea-
sanctions-modelled-occupied-palestinian-territories-301573.
19 See
http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en
/ec/142405.pdf.
• Expanded sanctions could include restrictions
on additional Russian government entities
(e.g., police/military, state-owned banks) or
on close associates or family members of
Russian Government officials, restrictions on
individuals or entities in certain sectors (e.g.,
financial services, energy, metals and mining,
engineering, and/or defense), limitations on
government procurement opportunities, and
further restrictions on export licensing;
• From the US perspective, extraterritorial
measures or “secondary sanctions” also
could be imposed that, for example, would
require no US nexus as was done in the case
of Iran (e.g., prohibiting access to the US
commercial and financial systems to non-US
entities that engage in sanctionable conduct);
• Comprehensive country-wide sanctions that
would restrict all commercial and financial
activity relating to Russia (an unlikely
scenario unless events escalate markedly);
and
• Strengthening of sanctions by the US and EU
would also likely lead to strengthening of
sanctions by Russia.
Richard Burke
Partner, Washington DC
T +1 202 626 3687
F +1 202 639 9355
rburke@whitecase.com
Nicole Erb
Partner, Washington DC
T +1 202 626 3694
F +1 202 639 9355
nerb@whitecase.com
James Killick
Partner, Brussels
T +32 2 239 25 52
F +32 2 219 16 26
jkillick@whitecase.com
Igor Ostapets
Partner, Moscow
T +7 495 787 3019
F +7 495 787 3001
iostapets@whitecase.com
Key Resources
For additional information related to the US
and EU sanctions see
www.whitecase.com/ukraine-news-update
In this publication, White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership,
White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, entities. This report is provided for your
convenience and does not constitute legal advice. It is prepared for the general information of our clients and other interested persons and should not be acted
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